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bKash CEO named global high-impact finance leader

June 12, 2023

by CSSL Blog Bangladesh Business Financial planning

Kamal Quadir

bKash CEO Kamal Quadir has been named as one of the global high-impact leaders in finance by Washington-based nonprofit organisation Aspen Institute.

The Aspen Institute, the global organisation committed to realising a free, just, and equitable society, has named the 2023 Class of its Finance Leaders Fellows and included Quadir in the list, as a diverse range of high-impact leaders to shape the future of finance.

The Finance Leaders Fellowship is a global community of values-based senior finance leaders driving industry change to power societal progress.

The 23 leaders of the 2023 class join more than 100 finance fellows around the world who are committed to forging a new cultural paradigm in the finance industry – a paradigm that marshals the industry’s global influence to address urgent societal challenges and promote sustainable economic growth, said Aspen Institute said in a media release.

Of the other 22 of 2023’s finance leader fellows, 12 were selected from the USA, two from Canada, three from the UK and one each from Singapore, Germany, Malaysia, Romania and Saudi Arabia.

All of them, including Kamal Quadir, will join a wider community of over 3,500 values-based leaders in over 60 countries as part of the Aspen Global Leadership Network (AGLN).

“The finance ecosystem is a bedrock that sits beneath communities big and small, affecting lives and livelihoods in every corner of the world. We believe the global finance industry needs the imagination and leadership of these Fellows to recreate itself to be a force for good and belonging,” said Dar Vanderbeck, acting executive director of the Finance Leaders Fellowship.

Source: The Daily Star

Why aren’t prices of essentials falling locally?

June 12, 2023

by CSSL Blog Bangladesh Business Financial planning

Prices of commodities declined for 13th consecutive month in May globally

Global commodity prices are falling.

The Food Price Index of the Food and Agriculture Organisation also shows that the prices of commodities declined for the 13th consecutive month in May. The Index was 35.4 points, or 22.1 per cent, lower than the all-time high reached in March 2022.

The decline in May was underpinned by significant drops in the price indices for vegetable oils, cereals and dairy, which were partly counterbalanced by increases in the sugar and meat indices, said the UN agency in its latest prices index.

For millions of consumers in Bangladesh, things are, however, different. They are not reaping the benefit of the decline. Instead, they continue to see the opposite in some cases.

Take wheat flour, a highly import-based commodity. Over the last one year, the prices of the grain declined 35 per cent year-on-year to $311.5 per tonne in the international market.

In Bangladesh, the prices of wheat flour went up as much as 25 per cent during the same period, according to a commerce ministry paper presented at a meeting of the government task force on essentials yesterday.

The scenario is identical in the case of lentils.

The extent of price decline is much lower in Bangladesh than that of the global trend, raising questions about why prices are not falling locally in line with the international market.

For edible oil, consumers, however, have received some relief.

In the last one year to June 8, the prices of soybean oil have fallen 44 per cent to $912 per tonne in the international market.

Commodities processors cite various reasons, including the increased import cost because of the dearer US dollars and the hike in the prices of gas, electricity and energy. Some also blame the less-than-required imports of commodities such as wheat and the supply-demand mismatch.

Analysts also point to other issues, including a lack of competitive environment, control of major commodity imports by a few players, collusion among market participants, and a high profiteering tendency among businesses in the supply chain amid inadequate monitoring and enforcement by public agencies, compelling consumers to pay more.

In its review of the economy last month, the Centre for Policy Dialogue (CPD) said importers argue that their current stocks were purchased at higher costs, preventing them from immediately lowering prices in response to a drop in global rates.

“If this argument is logical, then the reverse should also hold – when commodities are imported at cheaper prices, these should also be sold at lower prices until old stocks are depleted, even if there is a price hike in the international market.”

“When international prices rise, importers immediately raise prices, even for their old stocks.”

This is, according to the CPD, related to the presence of an imperfect market mechanism, where market rules fail to operate optimally. This has contributed to the current inflationary trend.

The CPD said high prices are not fully an external phenomenon.

Citing his experience, a top private banker dealing with international trade said a section of commodity importers do not want to cut the prices as they want to make up for their previous losses.

Asked, Md Shafiul Ather Taslim, director for finance and operation at TK Group, a commodity processor, blamed a surge in the cost of dollars as a key factor.

In January 2022, the dollar traded at Tk 84. It has now rocketed to Tk 110-Tk 111 amid a shortage of the American greenback.

“The cost of the US dollar has risen by 32 per cent,” he said.

Electricity tariffs and transport costs have increased while gas bills have more than tripled in the last one year.

“So, how will the price fall in the international market affect the local market?” he questioned.

Businesses also blame the difficulty in opening letters of credit amid a shortage of US dollars.

Anup Kumar Saha, a former CEO of a commodity importing firm, says if the price in the global market falls, the price in the local market should come down theoretically.

“But the reality is that after importing a product and bringing it to the country, the price is determined based on its demand-supply.”

“What happens in the local market is that when there is a gap in the supply-demand and the control of a product is in the hands of one or two traders, they monopolise.”

Saha, who regularly follows the trends in the global commodity markets, says it is difficult to say when consumers in Bangladesh will start benefiting from the price reduction in the global market.

In a press release yesterday, Tapan Kanti Ghosh, senior commerce secretary, said wheat shortage stood at 24 lakh tonnes when it comes to requirement. In the case of sugar, the shortage was 72,000 tonnes.

The commerce ministry paper also mentioned an absence of proper competition in the market, a lack of records on the purchase and sales prices at the trader level, and weaknesses in policies in commodity market management.

In order to benefit consumers, it suggested the imposition of specific duties on essential commodities, expansion of market intervention by the Trading Corporation of Bangladesh, and giving priority to opening LCs by importers.

Source: The Daily Star

Govt borrows Tk13,000cr from banks in May, highest in a month

June 12, 2023

by CSSL Blog Bangladesh Business Financial planning

The government repaid Tk2,783 crore to the Bangladesh Bank

The government borrowed Tk13,015 crore from banks in May alone, which is significantly higher compared to just Tk7,663 crore borrowed in the previous 10 months combined.

In the same month, the government repaid Tk2,783 crore to the Bangladesh Bank, according to data from the central bank.

At the end of May, its borrowing from the central bank stood at Tk71,610 crore, compared to Tk2,146 crore at the same time last fiscal year.

Bankers said inflation is rising due to soaring import costs, and the situation is exacerbated by the government’s borrowing from the banking system to meet its budget deficit.

According to data from the Bangladesh Bank, in the 11 months of the current fiscal year, the government has borrowed from the banking system – the central bank and scheduled banks – to the tune of Tk92,288 crore which is 82.68% of the target for the entire financial year.

At this time in the last fiscal year, the government’s bank borrowing was only Tk32,515 crore.

In the July-May period, the government borrowed Tk20,678 crore from banks compared to Tk30,368 crore in the last financial year.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard, “The government’s bank borrowing has increased as it could not collect revenue according to its target. The government borrowed heavily from the central bank through devolvement which was not good thinking.”

“The government has increased borrowing from scheduled banks rather than central bank loans. If this debt increases, it will ease inflation to some extent,” he added.

The government’s revenue collection target for the fiscal 2022-23 was Tk3.70 lakh crore. However, in the first 10 months, the revenue collection stood at Tk2.50 lakh crore, which is only 67% of the target.

The managing director of another bank told TBS on condition of anonymity that the amount of deposits has been increasing in the last few months due to which the government has increased its borrowing from banks. Apart from this, banks are also investing in government treasury bills and bonds due to reduced demand for private sector loans.

According to data from the central bank, the deposits of the banking sector stood at Tk15.48 lakh crore at the end of April. In that month, deposits increased by about Tk25,000 crore.

Duty hike to make cement costlier, burden building costs

June 11, 2023

by CSSL Blog Bangladesh Business Financial planning

Cement prices may increase by Tk30 to Tk50 at the retail level

Infographic: TBS

The duty structure proposed in the new budget is supposed to add Tk15 to the cost of production of cement per bag, but manufacturers mull a Tk30-Tk50 hike per bag at retail level, which will further increase the construction cost at all levels.

Such an abrupt rise in the price of cement, a crucial ingredient for construction work, will add to the already high costs of other building materials including rod – be it for houses, offices, roads, mega projects, or factories, builders and contractors fear.

In the proposed budget for the fiscal 2023-24, import duty on clinker, the primary raw material for cement, has been raised to Tk700 per tonne from the earlier Tk500. Besides, the new budget proposes increasing the specific rate of duty from Tk750 to Tk950 for commercial importers.

Once the cement made from the new clinker supply comes to the market, the cost of production would go up and cement prices may shoot up to as high as Tk580 per bag at the retail level from Tk550 now depending on various brands, factory owners and dealers have hinted.

This situation will make the lives of contractors miserable as they have been awarded projects prior to the increase in cement prices, as reported by contractors.

What cement makers say

The import duty on cement clinker has already been in force even before the budget for FY24 could be passed.

The customs authorities started levying the new duty rate on clinker imports on 1 June, said Barrister Badruzzaman Munshi, deputy commissioner of Chittagong Custom House.

Premier Cement Managing Director Amirul Haque told The Business Standard that they are planning to raise the price of their cement by Tk20-Tk25 per bag at the factory gate soon.

Factory owners set the price of their cement in coordination with costs which will increase according to the new import duty rate, he said.

“The dollar price has increased by about 25%, pushing various other costs to increase. These additional costs have to be included in the increase in the price of the product,” he added.

About 13,000 tonnes of their cement clinker will be released on 12 June, said Zahir Uddin Ahmed, managing director of Confidence Cement and second vice-president of the Bangladesh Cement Manufacturers Association (BCMA).

Additional money has to be paid as per the new duty rate to release the clinkers, he said.

His company too is planning to increase cement prices after the budget is passed. “We will increase the price according to the amount of additional money spent on import duties and other taxes,” he said.

Cement retailer Arman Chowdhury, owner of Fahim Traders in Chattogram, said the price of cement varies depending on the area and transportation costs at the retail level.

Several factory owners have already informed him that a price hike is coming soon, he said.

Stages of cement price

The cement industry was already under stress due to the Covid-19 pandemic, the logistics problems stemming from the Russia-Ukraine war, and the increase in shipping fares for transporting goods.

Factory owners and dealers said if the production cost jumps again, cement will be sold at Tk580 to Tk600 per bag at the retail level, badly hurting the country’s infrastructural development.

Currently, at the factory gate, cement is sold at Tk460 to Tk480 per bag.

The prices go up to Tk500-Tk520 at the dealer level.

And at the retail level, different brands of cement are sold at Tk520 to Tk550 per bag.

Spillover effects

Md Shahidullah, first vice president of the BCMA and managing director of Metrocem Cement, told TBS that they are now only able to import 40% of the clinker demand due to the dollar crisis.

“In a pre-budget discussion, I proposed that the government reduce the import duty from Tk500 to Tk200 and slash advance income tax to 0.5% from 3%,” he mentioned.

“However, not only our demands were ignored, the duty on clinkers was raised,” he said.

Industry insiders said the additional duty is a blow for the sector which is already reeling from a high tax burden, fuel crisis, increase in transport fares, and dollar crisis.

The price of almost every construction material has increased by 18%-70% in the last two years, badly affecting the country’s real estate industry, they said.

Real Estate and Housing Association of Bangladesh (Rehab)’s Chattogram chapter President Abdul Kauiam Chowdhury said that the country’s housing sector is in an extreme crisis due to the abnormal increase in construction materials.

“On top of that, the duty increase of clinkers will have a major impact on the construction industry,” he said.

Warning that the move will rather reduce the government’s revenue collection effort, Abdul Kauiam demanded the withdrawal of the additional duty.

Meanwhile, the Bangladesh Cement Manufacturers Association (BCMA) has demanded that the import duty of clinker be reduced to Tk200 per tonne.

To press their demand home, the organisation has called a press conference in Dhaka on 12 June.

BCMA representatives said customs duty stands at around 12%-13% of the import value with the new rate, which is vastly disproportionate to other imports.

What contractors say

Shafiqul Haque Talukder, former President of the Bangladesh Association of Construction Industry (BACI) told TBS the burden of higher cement prices will fall entirely on the consumer.

It will also adversely affect the ongoing government projects as the costs were estimated with previous material costs, he noted.

“Now, if the price of cement goes up, the contractors will have to spend money from their own pockets. By doing this, the flow of work in the ongoing projects will get slower,” Shafiqul Haque feared.

About 30% of the country’s total construction materials are used in government projects, according to Mezbaur Rahman Ratan, general secretary of the Bangladesh Contractors Association.

Contractors are already finding it hard to repay bank loans and pricier cement will further increase their woes, ASM Mainuddin Monem, managing director of Abdul Monem Construction Limited told TBS.

According to the data of December last year, 1,018 development projects worth 4.5 lakh crore of seven government entities were stalled due to various reasons, including the high market price of construction materials.

People concerned said those projects are still seeing slow progress.

Naimul Hassan, director of Rehab said, due to the increase in the price of materials, the construction of residential buildings in the capital has decreased by about 40% “Few housing companies are starting new projects this year.”

Cement in Bangladesh

Bangladesh has 34 cement producers. Among them, four are multinational.

These companies have the capacity to produce 10 crore tonnes of cement.

However, due to economic stress in the country, only 3.5 crore tonnes of cement was sold last year.

Over the last seven years, the compound annual growth rate of the cement industry had been approximately 11.5%.

Per capita consumption of cement was nearly 250kg in 2022, up from 45kg two decades ago.

Over 80% of the cement market is controlled by 10 companies.

Interest rate cap withdrawal to affect investment: FBCCI

June 8, 2023

by CSSL Blog Bangladesh Business Financial news

If the bank interest rate cap is withdrawn and left to be decided by the open market, inflow of investment will be affected, said Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) yesterday.

However, a large number of economists have been suggesting over many months to withdraw the interest rate cap for lowering the high inflation in the domestic markets.

Previously, bank interest rates were increased to reduce inflation but the result was the opposite, as inflation could not be contained while investment was affected, said Jashim.

The government should increase the allocation for improving energy supplies as the industries have been suffering from low gas pressure in the supply lines and frequent power cuts, he added.

If the government wants to maintain macroeconomic stability, investment in energy is very important, he told a roundtable on the proposed budget for fiscal 2023-24.

Production in industrial units has been affected for the ongoing low gas pressure and frequent power cuts although gas prices were doubled to Tk 30 per unit from Tk 16 per unit, said Jashim.

Expressing resentment, he said the government has been amending the banking companies act but the FBCCI does not know anything about it as this important stakeholder was not consulted.

Moreover, although a taskforce exists comprising representatives of the National Board of Revenue (NBR) and the FBCCI, meetings are not taking place for consultations on different disputes related to tax issues, he said.

Jashim demanded that the government withdraw a 15 per cent VAT on the sale of recycled fabrics and yarn and suggested on not imposing advanced income tax as surplus amounts are not returned to businesspeople as per the rules.

The proposed budget is not ambitious but it will be difficult to implement, he said.

He also suggested automating services of the NBR and for expanding the tax net up to rural areas for generation of more revenue.

The discussion was organised by Economic Reporters’ Forum (ERF) in collaboration with the Research and Policy Integration for Development (RAPID) and The Asia Foundation at the ERF office in Dhaka.

Abdur Razzaque, chairman of the RAPID, suggested increasing direct tax, mainly to reduce income inequality.

Currently, direct tax accounts for 35 per cent of the total revenue generated by the government and the government plans to take it up to 42 per cent in a few years. If it can reach 50 per cent by 2030, it will be laudable, he said.

He also suggested increasing the allocation in three important sectors, even if it means reducing that for others, to benefit the low-income segment of the population.

The proposed budget reduced allocations to some extent in these three sectors from that last year, said Razzaque.

Of them, the allocation for open market sales of commodities by state agencies was reduced by some 10 per cent, vulnerable group feeding by 30 per cent and job creation for financially insolvent people 15 per cent, he said.

Highlighting that macroeconomic stability is very important, Razzaque suggested withdrawing the interest rate cap and letting it be decided by the open market to curb inflation in the markets.

If social spending is increased, inflation will cool down a bit, he also said.

Achieving a 7.5 per cent GDP growth should not be a priority, rather it now should be on maintaining macroeconomic stability, said Shawkat Hossain Masum, head of online on Bangla daily Prothom Alo.

The government’s strategies for maintaining macroeconomic stability is not clear in the proposed budget, he said.

Excessive borrowing by the government from the banking system is a major concern for the economy, said Ferdous Ara Begum, chief executive officer of Business Initiative Leading Development (BUILD).

Some Tk 16 trillion is needed to reach the targeted investment-GDP ratio of 33 per cent, she added.

M Abu Eusuf, executive director of the RAPID, suggested introducing a “remittance card” to encourage remitters to send money through formal channels.

The school feeding programme for children in the budget is laudable, he said.

The proposal for individuals, who are required to submit income tax returns to avail of various government services, to pay a minimum tax of Tk 2,000 even if they do not have taxable incomes may be considered for withdrawal, said Planning Minister MA Mannan.

Prices of some commodities has increased and lowering inflation to 6 per cent is next to impossible, he said, suggesting state-owned Trading Corporation of Bangladesh to have large stocks of goods to intervene in the market.

ERF President Mohammad Refayet Ullah Mirdha chaired the discussion while General Secretary Abul Kashem moderated the session.

Source: The Daily Star

Higher growth not possible without healthy forex reserve Says AmCham chief

June 8, 2023

by CSSL Blog Bangladesh Business Financial news Financial planning

No significant economic growth is possible in Bangladesh without a satisfactory level of foreign exchange reserves, said Syed Ershad Ahmed, president the American Chamber of Commerce in Bangladesh (AmCham), yesterday.

So, instead of restricting imports, the country should speed up the implementation of foreign-funded projects, he said.

He made the comments at a post-budget panel discussion organised by the AmCham Bangladesh in the capital’s Sheraton Hotel.

His observation comes as the forex reserve dipped to $29.92 billion on May 31, down nearly 29 per cent from $42.20 billion recorded on the same day last year, Bangladesh Bank data showed.

Ahmed also said: “It is a critical issue for developing countries that rely on external borrowing to drive economic growth.”

“We recommend the adoption of prudent central bank management strategies that promote transparency, accountability and fiscal discipline in this sector.”

The deficit in the financial account of the balance of payments is a matter of serious concern as it reduces the reserves of foreign exchanges and impacts the whole economy, said speakers.

A financial account is a component of a country’s balance of payments that covers claims on or liabilities to nonresidents concerning financial assets.

“A depletion of the exchange reserves has been a matter of concern throughout the current financial year despite compression in imports,” said Ahsan H Mansur, executive director of the Policy Research Institute.

It is still uncertain if the end-June floor on the net forex reserves of $24 billion established under the loan programme of the International Monetary Fund (IMF) can be achieved, he said.

“Are we there? Are we able to keep it? We don’t know as the Bangladesh Bank does not publish the net foreign exchange reserve data.”

Mansur said since the country is already facing a dollar crunch, electricity outage is not unusual as adequate coal and oil could not be imported because of the USD crisis.

According to Mansur, the central bank is trying to keep the reserve at a certain level as international organisations and correspondent banks are looking at whether the reserve target can be achieved.

Planning Minister MA Mannan said both ongoing load-shedding and inflationary pressure are intolerable.

“The prime minister has directed taking necessary measures to resolve these two problems.”

Mannan said the government had expected that inflation would fall.

“Rather, it has increased. It is disappointing.”

Inflation in Bangladesh surged to 9.94 per cent in May, which is the highest in the past one decade, according to the Bangladesh Bureau of Statistics. The previous high in recent times was recorded in August last year when the Consumer Price Index soared 9.52 per cent.

The minister hoped that inflation would come down gradually.

“Everything that has fuelled the inflation is not under the control of the government.”

Mansur said inflation is accelerating in Bangladesh at a time when global commodity prices are declining.

“No monetary policy measure has been taken to fight inflation as of now.”

Source: The Daily Star

Private sector’s foreign loan repayment to drop 42% in 2023

June 8, 2023

by CSSL Blog Bangladesh Business Financial news

Projects central bank; economists say it might not bring major relief

The Bangladesh Bank has projected that loan repayments against mid- and long-term foreign credits secured by the private sector might fall by 42.6 per cent in 2023, but the development might not bring about major relief for an economy reeling under the forex crisis.

The private sector will have to repay loans amounting to $1.62 billion this year compared to $2.82 billion in 2022. Debts worth $1.77 billion will have to be repaid in 2024, data from the central bank showed.

Economists say there is no scope to feel complacent about the decrease in debt servicing as the new flow of foreign loans has reduced to a large extent.

On top of that, the private sector would have to pay $16.41 billion in short-term loans this year.

The overall private sector foreign loans stood at $24.30 billion as of December last year, up 5.3 per cent from a year ago.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, says that the financial account of the balance of payments has recently registered a large drop, creating a major problem for the economy.

A widening deficit in the financial account means there is a large gap between the inflow and outflow of foreign exchanges.

A financial account covers claims or liabilities to non-residents concerning financial assets. Its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investment, and reserve assets.

Between July and March of 2022-23, the financial account registered a deficit of $2.21 billion in contrast to a surplus of $11.92 billion a year ago, data from the BB showed. The deficit was $1.97 billion in July-February.

Historically the financial account of Bangladesh has experienced a surplus almost every year.

Mansur said that foreign lenders are showing reluctance to give out loans to the private sector in Bangladesh in some cases due to the ongoing unstable situation in the foreign exchange market.

The reserves stood at $29.91 billion on May 31, down about 29 per cent in contrast to $42.20 billion a year ago.

The declining foreign exchange reserves have dented the confidence of foreign lenders when it comes to disbursing loans to businesses in Bangladesh.

Besides, many local businesses are also avoiding borrowing from external sources as the interest rates on loans have increased in the global market substantially, said Mansur, also a former official of the International Monetary Fund.

A regular inflow of foreign loans is highly important to bring back stability in the foreign exchange market.

A Bangladesh Bank official says that the government has adopted a cautious stance before approving fresh foreign loans given the ongoing stress in the market.

Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, says that the declining trend of foreign loans is not a good sign for the economy as it will adversely affect GDP growth.

“The central bank is slowly releasing funds from its Export Development Fund, so the dollar shortage in the private sector has widened,” he said.

In Bangladesh, the exchange rate risk in the private sector has deepened as the taka has weakened against the US dollar significantly in recent months amid a sharp fall in the forex reserve.

The dollar traded at Tk 108.3 on Tuesday, a year-on-year increase of 18 per cent against the local currency.

“Under such a situation, the businesses that took loans two years ago have to pay more due to the sharp fall in the value of the local currency,” Rahman added.

Source: The Daily Star

ADN Telecom to acquire 10% stake of Shohoj Ltd at Tk12cr

June 7, 2023

by CSSL Blog Bangladesh Business Financial news

Infograph: TBS

Publicly listed IT and telecommunication services provider ADN Telecom is going to acquire a 10% stake at Shohoj Limited — the pioneer of Bangladesh’s largest online ticketing platform “Shohoz” — at a cost of Tk12 crore.

This is the first local investment in Shohoj Limited, and the company will use the fund to expand its business.

ADN Telecom’s Managing Director Henry Hilton told The Business Standard, “This investment was planned seeing good business potential from the share acquisition. Not only will it help Shohoj expand its business, but also help us expand ours.”

“Shohoj is currently offering online ticketing services. Through this investment, the company will be able to focus on this sector’s expansion.”

“Apart from this, our expert team and Shohoj’s team will work on business development,” he added.

Shohoj at a glance

Shohoj, founded in 2014 for online bus, launch, events and movie ticketing services, secured its edge and became the market leader in the ticketing segment.

Later, it opened motorcycle ride-sharing, truck booking, online doctor consultation, digital education, and home delivery of foods, groceries, and medicine through the “Shohoz” app.

“Shohoz” exclusively manages the online integrated ticketing platform of Bangladesh Railway.

ADN Telecom’s other endeavours

The ADN Group’s concern, in May this year, decided to construct a 13-storied commercial building and set up a data centre in the capital’s Badda area.

The building will have a total approximate floor space of 1,16,400 square feet, and the first and second floors will be used as the data centre.

The estimated total cost of the project will be Tk70 crore which will be financed through a syndicate loan from banks.

Earlier, in July last year, ADN Telecom signed an agreement to acquire 60% shares of SOS Developments — a fire security solutions service provider — at a cost of Tk2 crore for 10 years. The expected revenue from this deal is over Tk50 crore approximately per year.

ADN Telecom was established in 2003. It raised Tk57 crore from the stock market through an initial public offering in 2019. Since its stock market listing, the company has been paying 10-15% cash dividends per year.

In the January to March quarter of the current 2022-23 fiscal year, the company’s consolidated net profit stood at Tk3.48 crore, which was higher compared to the same quarter previous year.

As of 31 March 2023, sponsors and directors held 44.91%, and institutions 18.30%, foreign investors 1.99%, and general investors 34.80% shares in the company.

p1_infograph_fiscal-risks-due-to-taka-devaluation_2

Weak taka number one risk for macro stability: Finance Ministry

June 7, 2023

by CSSL Blog Bangladesh Business Financial news Financial planning

Further devaluation will increase debt payment, subsidy and project spending, it warns

Infographic: TBS

If the local currency loses its value against the dollar by one taka more, the government’s subsidy spending for electricity alone will go up by Tk473.6 crore in the upcoming financial year. A 10% depreciation will mean an increase of Tk3,800 crore in government loans and guarantees in the fiscal 2023-24, the finance ministry projects.

In a document it identifies losing value of taka as the number one risk for the macroeconomic stability for the next three years, which is not only fuelling inflation but also causing additional financial cost for the government.

It analyses how the weakening taka will increase the government’s cost burden in overall subsidy expenditures, loan repayment and project implementation.

The finance ministry has identified several other risks to Bangladesh’s financial stability in the budget document titled “Medium-Term Macroeconomic Policy Statement 2023-24 to 2025-26.”

The recent depreciation of the taka has resulted in increased expenditure on imports and scheduled foreign debt repayments. A further depreciation will escalate the government’s debt burden and create financial risks to projects taken up under public-private partnership, says the document.

“The devaluation of the currency can lead to a substantial increase in government project expenditure. Many government initiatives, particularly mega projects, rely heavily on imported goods. Consequently, due to the depreciation of the exchange rate, project costs may escalate, resulting in an additional financial burden,” it reads.

It also explains how currency devaluation directly influences both government revenue and expenditure, and may cut into the per capita income in terms of dollars. If the decline in the exchange rate of the taka continues, it will not be possible to achieve the annual Gross National Income (GNI) plan as per the target of the eighth five-year plan, the ministry document warns.

In its self-diagnostic document the finance ministry has detailed the adverse impacts of the taka depreciation on import costs, which reduce overall imports, thus resulting in less revenue from import stage. Consequently, if the currency continues to depreciate, the government’s revenue from the import sector may further decline and subsidy expenditure can significantly increase.

Bangladesh allocated Tk40,265 crore for subsidies in the food, energy, and power sectors in the budget for the fiscal year 2022-23, says the document of the finance ministry.

The subsidy in these sectors increased to Tk50,926 crore in the revised budget. For the upcoming fiscal year, Tk66,762 crore has been allocated for subsidies in these sectors.

According to data from the Bangladesh Power Development Board, in the fiscal 2023-24, a depreciation of one taka against the dollar will result in an increase of Tk473.6 crore in the power sector subsidy, as reported by the finance ministry.

Low tax collection and tax arrears, additional allocation for pension of government employees, high government interest expenses, the need for recapitalisation of state-owned banks are among the factors posing threats to the country’s economy, says the soul-searching document, prepared by a team of the Macroeconomics Division led by Senior Secretary of the Finance Division Fatima Yasmin.

Weak balance sheets and non-performing loans of state lenders could further increase the government’s financial burden and limit the effectiveness of overall financial risk management, it warns, pinpointing macroeconomic risks for Bangladesh for the next three fiscal years.

The Bangladesh Bank has increased the dollar selling rate from its reserves for the 16th time in the current fiscal year by Tk1.5 – the largest single devaluation of the taka – on 1 June.

The taka has already been devalued by 22.61% over the last one year, which has led to an increase in the dollar rate from Tk86.45 to Tk106.

The central bank is under pressure to devalue taka to save dollars and reach the foreign exchange reserves to the threshold agreed upon with the IMF for its $4.7 billion dollar loan package. There is also an obligation to establish a unified exchange rate, expected to come into effect next month.

The public debt, including guaranteed loan, is projected to reach Tk36,400 crore in the next financial year, which may increase to Tk36,600 crore in FY25 and Tk37,100 crore in FY26, the ministry says, expressing worries about the impact of depreciation on debt situation.

If the taka depreciates further by 10% against the dollar, the debt amount will increase to Tk40,200 crore by the end of the next financial year and this trend is expected to continue in the coming financial years, it projects.

“The direct costs, as well as explicit and implicit liabilities, associated with PPP projects may create financial risks for the government. This could potentially hinder the government’s ability to mobilise funds in the development sector,” the document reads.

Salehuddin Ahmed, former governor of the Bangladesh Bank, also pointed to the risks from rapid depreciation of taka.

“If the exchange is not strong, it can make private sector investments more costly. Additionally, imports will become more expensive, resulting in an increase in the cost of doing business,” he said.

He further said, “Two years ago, when the value of the dollar started to strengthen, the Bangladesh Bank should have gradually devalued the taka. However, this was not done at that time. Now, with the sudden increase in the price of the dollar, the economy is struggling to adapt.”

He pointed out that various countries, including India, have periodically devalued their currencies without adversely affecting their economies.

The former central bank governor said, “Bangladesh Bank artificially maintained the dollar exchange rate for the last two years. Now the government has identified the exchange rate as the biggest risk, but no action is being taken to deal with this risk.”

Zahid Hussain, former chief economist of the World Bank in Dhaka, said that the analysis given by the Ministry of Finance on the exchange rate is partial.

“If the currency depreciates, besides increasing the government’s spending on foreign debt, the government will get additional money against the foreign debt,” he said.

“The revenue from the import sector is supposed to increase due to the devaluation of the taka. But the reason for the decrease in revenue from imports in Bangladesh is that due to the dollar crisis, the Bangladesh Bank is artificially controlling imports to reduce demand,” Zahid Hussain said.

The eminent economist further said that for the last one-and-a-half years, Bangladesh had artificially suppressed the currency exchange rate.

“They thought that the dollar crisis would be alleviated by controlling imports rather than devaluing the currency for fear of rising inflation. It is true that imports have decreased, but the dollar crisis has become more severe, and inflation has risen to 10%,” he said.

Emphasising on the supply of sufficient dollars to deal with the financial risks related to the exchange rate of money, Zahid Hussain said that the existing cap on the exchange rate of the dollar should be removed.

“Besides, monetary policy and the financial and energy sectors should be reformed. Steps should be taken to increase foreign exchange reserves by strengthening export trade,” he added.

FY23’s bleak business climate has driven out IPOs too

June 4, 2023

by CSSL Blog Bangladesh Business Financial news

An electric equipment manufacturer backtracked on its plan to go public in FY23 months after making a deal with IDLC Investments as issue manager.

The reason was a decline in its earnings, the most crucial factor to consider while fixing the offer price at which publicly-issued securities are made available for eligible investors under the book-building method. General investors can purchase shares at a discount to the offer price.

The company’s business was hit hard by the taka becoming cheaper against the dollar. It opened L/C (letter of credit) at Tk 85, which was finally settled at Tk 110, said Md. Moniruzzaman, immediate past managing director of IDLC Investments.

The local currency devaluation squeezed many companies’ income, which had been keen on getting listed in FY23 but then felt discouraged to do so, he added.

Recent profit growth is an important determinant of the offer price when an IPO (initial public offering) is floated under the book-building method.

But the electric equipment manufacturer had decided to get the offer price set by the fixed-price method. The drop in income stoked the fear that the stock might face under-subscription or its share price would fall below the face value of Tk 10 in secondary market trading after the IPO when a security’s worth is determined by market forces.

The company planned to submit an IPO proposal on the basis of its financial performance in the year through June 2022. But their growth expectations were not met due to the Russia-Ukraine war.

Business slowdown is not the only factor as to why the number of IPOs and the capital raised through IPOs have almost remained static in FY23 compared to the previous fiscal year.

The dire state of the country’s capital market too contributed to the outcome.

The possibility of a newly-listed company being traded at a fair price is thin when a majority of fundamentally-sound stocks have long been languishing at floor prices.

In FY23, the Bangladesh Securities and Exchange Commission (BSEC) approved IPO proposals of seven companies and one closed-end mutual fund (MF).

One of the companies, Asiatic Laboratories’ IPO is suspended due to an inquiry lodged following complaints about over-valuation of assets.

The remaining six companies and the MF raised an aggregate amount of Tk 6.46 billion while eight companies raised Tk 6.95 billion in total in FY22.

Except for Navana Pharmaceutcals, all other companies went public under the fixed price method in FY23.

According to the officials of the securities regulator, two IPOs are in the pipeline.

Of the companies, Best Holdings proposed raising fund under the book-building method while B Brothers Garments submitted a proposal to float IPO shares under the fixed price method.

Recently, the regulator has rejected an IPO proposal by Islam Oxygen for its failure to submit relevant documents.

Apart from the main board, three companies raised Tk 270 million through the exchange’s SME board. The companies are Al-Madina Pharmaceuticals, BD Paints and Mamun Agro Products.

Of the companies that have been listed on the main board in FY23, Trust Islami Life Insurance has continued a rally since its listing in May. Its price jumped more than 300 per cent on the Dhaka Stock Exchange (DSE).

The share price of another insurer, Chartered Life Insurance Company has also experienced abnormal price appreciations in recent times.

Of the remaining companies, the share prices of Islami Commercial Insurance Company and Midland Bank are above the face value while Global Islami Bank has been trading below the face value.

Complaints about book-building method

Only two companies went public under the book-building method in FY22 and FY23.

According to some issue managers, many good companies are not happy with the bidding process required to fix the offering price of shares.

They said a company’s growth in earnings per share is not reflected in the price determined.

As per the existing system, a company’s share price cannot exceed the sum of the net asset value (NAV) per share and the weighted average of EPS in the last five years.

BSEC Chairman Prof Shibli Rubayat Ul Islam recently told the FE that the existing bidding process would not be a barrier for the companies with good fundamentals and that the regulator would help such companies in fund raising.

Another BSEC official requesting anonymity said the bidding process had been tightened to contain the practices of fixing offer prices higher through a nexus of bidders.

A lack of effort by issuer managers to bring good companies has also been frequently blamed for the insignificant flow of IPOs.

As many as 30 investment banks, out of 68, have played no role in listing of new stocks on the stock exchanges in the last five years.

Source: The Financial Express